STUART G. GROSS (#251019) JOSEPH R. SAVERI (#130064) · 2015-08-15 · Case No. 15-cv-00538-GEB-CMK...
Transcript of STUART G. GROSS (#251019) JOSEPH R. SAVERI (#130064) · 2015-08-15 · Case No. 15-cv-00538-GEB-CMK...
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PLAINTIFFS’ OMNIBUS OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS; Case No. 15-cv-00538
STUART G. GROSS (#251019) [email protected] DANIEL C. GOLDBERG (#287923) [email protected] GROSS LAW, P.C. The Embarcadero Pier 9, Suite 100 San Francisco, CA 94111 t (415) 671-4628 f (415) 480-6688
JOSEPH R. SAVERI (#130064) [email protected] ANDREW M. PURDY (#261912) [email protected] KEVIN E. RAYHILL (#267496) [email protected] JOSEPH SAVERI LAW FIRM, INC. 505 Montgomery Street, Suite 625 San Francisco, CA 94111 t (415) 500-6800 f (415) 395-9940
Attorneys for Plaintiffs the Paskenta Band of Nomlaki Indians and the Paskenta Enterprises Corporation
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF CALIFORNIA
PASKENTA BAND OF NOMLAKI INDIANS; and PASKENTA ENTERPRISES CORPORATION,
Plaintiffs,
v.
INES CROSBY; JOHN CROSBY; LESLIE LOHSE; LARRY LOHSE; TED PATA; JUAN PATA; CHRIS PATA; SHERRY MYERS; FRANK JAMES; UMPQUA BANK; UMPQUA HOLDINGS CORPORATION; CORNERSTONE COMMUNITY BANK; CORNERSTONE COMMUNITY BANCORP; JEFFERY FINCK; GARTH MOORE; GARTH MOORE INSURANCE AND FINANCIAL SERVICES, INC.; ASSOCIATED PENSION CONSULTANTS, INC.; HANESS & ASSOCIATES, LLC; ROBERT M. HANESS; THE PATRIOT GOLD & SILVER EXCHANGE, INC.; and NORMAN R. RYAN,
Defendants,
QUICKEN LOANS, INC.; CRP 111 WEST 141ST LLC; CASTELLAN MANAGING MEMBER LLC; CRP WEST 168TH STREET LLC; and CRP SHERMAN AVENUE LLC,
Nominal Defendants.
Case No. 15-cv-00538-GEB-CMK
PLAINTIFFS’ MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR A PRELIMINARY INJUNCTION Date: July 27, 2015 Time: 9:00 a.m. Courtroom: 10 Judge: Hon. Garland E. Burrell, Jr.
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TABLE OF CONTENTS INTRODUCTION ........................................................................................................................... 1 BACKGROUND ............................................................................................................................. 2
I. Factual Background ............................................................................................................... 2 II. Procedural Background ........................................................................................................ 5
LEGAL STANDARDS .................................................................................................................... 5 ARGUMENT ................................................................................................................................... 6
I. Plaintiffs Are Likely To Be Irreparably Harmed Absent A Freeze Order, As the RICO Ringleaders Have Shown They Are Likely to Dissipate and/or Hide Assets Stolen From the Tribe. ............................................................................................................................................ 6
A. The RICO Ringleaders Consistent Pattern of Fraud and Theft of Tribal Resources, Even After Their Removal From Power, Make it Likely They Will Dissipate Assets To Prevent Plaintiffs’ Recovery ................................................................................................................. 7 B. Realizing They Would Lose Access to Tribal Resources, After Their Removal From Power, The RICO Ringleaders Immediately Stole Large Amounts of the Tribe’s Money, Hid Assets, Destroyed Evidence, and Impeded Any Investigations Into Their Conduct ............. 18
II. Plaintiffs are Likely to Succeed on the Merits of Each of Their Claims Against the RICO Ringleaders. ................................................................................................................................ 24
A. Plaintiffs Are Likely to Prevail on Their RICO, Civil Conspiracy, and Fraud Claims 25 B. Plaintiffs Are Likely to Prevail on Their Claims for Violations of State and Federal Cyber Crimes ......................................................................................................................... 28 C. Plaintiffs Are Likely to Prevail on Their Conversion, and Money Had and Received Claims Against the RICO Ringleaders. ................................................................................. 29 D. Plaintiffs Are Likely to Prevail on Their Breach of Fiduciary Duty Claims ................ 30 E. Plaintiffs Are Likely to Prevail on Their Equitable Claims for Constructive Trust and Accounting ............................................................................................................................. 31
III. The Balance of the Hardships Tip Sharply in Plaintiffs’ Favor ........................................ 32 IV. Issuing Plaintiffs’ Requested Preliminary Injunction Would Serve the Public Interest ... 33
CONCLUSION .............................................................................................................................. 35
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TABLE OF AUTHORITIES
CASES All World Prof'l Travel Servs. v. Am. Airlines, Inc., 282 F. Supp. 2d 1161 (9th Cir.
2003) ..................................................................................................................................... 25 Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127 (9th Cir. 2001) .......................... 5, 6, 32 Alvarez v. Tracy, 773 F.3d 1011, 1013 (9th Cir. 2014) .............................................................. 34 Am. Trucking Ass’ns., Inc. v. City of Los Angeles, 559 F.3d 1046 (9th Cir. 2009) ...................... 6 Apple Inc. v. Psystar Corp., 673 F. Supp. 2d 943 (N.D. Cal. 2009) ........................................... 33 Boschma v. Home Loan Center, Inc., 198 Cal.App.4th 230 (2011) ........................................... 27 Cleveland v. Johnson, 209 Cal.App.4th 1315 (2012) ................................................................. 30 Communist Party v. 522 Valencia, Inc., 35 Cal.App.4th 980 (1995) ......................................... 31 Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 878 (9th Cir.
2003) ................................................................................................................................... 6, 7 Flynt Distrib. Co., Inc. v. Harvey, 734 F.2d 1389 (9th Cir. 1984) ......................................... 3, 25 FTC v. Affordable Media, LLC, 179 F.3d 1228 (9th Cir. 1999). .............................................. 5, 7 Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308
(1999) ...................................................................................................................................... 6 Hanger Prosthetics & Orthotics, Inc. v. Capstone Orthopedic, Inc., 556 F. Supp.
2d 1122 (E.D. Cal. 2008) ...................................................................................................... 29 Holstrom v. Mullen, 84 Cal. App. 1 (1927 .................................................................................. 31 Huong Que, Inc. v. Luu, 150 Cal.App.4th 400 (2007) ................................................................ 32 In re Focus Media Inc. v. Pringle, 387 F.3d 1077 (9th Cir. 2004) ............................................... 7 Int'l Airport Ctrs., L.L.C. v. Citrin, 440 F.3d 418 (7th Cir. 2006) ( ............................................ 29 Johnson v. Couturier, 572 F.3d 1067 (9th Cir. 2009) ..................................................... 5, 6, 7, 16 Kangarlou v. Progressive Title Co., Inc., 128 Cal.App.4th 1174 (2005). .................................. 31 Los Angeles Federal Credit Union v. Madatyan, 209 Cal.App.4th 1383 (2012) ....................... 29 Mains v. City Title Ins. Co., 34 Cal.2d 580 (1949) ..................................................................... 30 McCalden v. Cal. Library Ass'n, 955 F.2d 1214 (9th Cir. 1990) ................................................ 28 New Mexico v. Mescalero Apache Tribe, 462 U.S. 324 (1983) .................................................. 33 Oklahoma Tax Com'n v. Citizen Band Potawatomi Indian Tribe of Oklahoma, 498
U.S. 505 (1991) ..................................................................................................................... 33 PCO, Inc. v. Christensen, 150 Cal.App.4th 384 (2007) ............................................................. 29 QBAS Co. v. C Walters Intercoastal Corp., No. SACV 10-0406 AG U.S. Dist.
LEXIS 143945 (C.D. Cal. December 16, 2010) ................................................................... 32 Quantum Corporate Funding, Ltd. v. Assist You Home Health Care Services of
Va., 144 F. Supp. 2d 241 (S.D.N.Y. 2001) ........................................................................... 32 Republic of Philippines v. Marcos, 862 F.2d 1355 (9th Cir. 1988) .............................................. 5 SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082 (2nd Cir. 1972) ................................. 23, 24 Sequoia Vacuum Systems v. Stransky, 229 Cal.App.2d 281 (1964). .......................................... 31
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Stilwell v. Trutanich, 178 Cal.App.2d 614 (1960) ...................................................................... 31 United States v Kim, 677 F.Supp.2d 930 (2009, S.D. Tex) ........................................................ 28 United States v Nosal, 676 F3d 854 (9th Cir. 2012) ................................................................... 29 Walczak v. EPL Prolong, Inc., 198 F.3d 725 (9th Cir. 1999) ....................................................... 6 Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008) ............................................... 6 Wyatt v. Union Mortgage Co., 24 Cal.3d 773 (1979) (“ ............................................................. 27
STATUTES 18 U.S.C. § 1343. ........................................................................................................................ 26 18 U.S.C. § 1956 ......................................................................................................................... 26 18 U.S.C. § 1962 ................................................................................................................... 25, 26 18 U.S.C. § 1962(b) .................................................................................................................... 25 18. U.S.C. § 1030(e)(2)(B) ......................................................................................................... 28 25 U.S.C. § 450(c) ...................................................................................................................... 18 28 U.S.C. § 1362 ......................................................................................................................... 34 31 U.S.C. § 5311 ......................................................................................................................... 15 Cal. Civ. Code § 2224 ................................................................................................................. 31
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PLAINTIFFS’ OMNIBUS OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS; Case No. 15-cv-00538
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INTRODUCTION
Plaintiffs the Paskenta Band of Nomlaki Indians (the “Tribe”), together with its principal
business vehicle, the Paskenta Enterprises Corporation (“PEC,” collectively with the “Tribe,”
“Plaintiffs”) seek a preliminary injunction imposing an immediate freeze on the assets of
Defendants John Crosby, Ines Crosby, Leslie Lohse, and Larry Lohse (the “RICO Ringleaders”)
to prevent any further attempts by them to frustrate a future judgment in this action.
The RICO Ringleaders, who are former senior employees of the Tribe, stole millions of
dollars over the course of a well over decade-long conspiracy, during which they hid their thefts
from the Tribe through, inter alia, engaging in complex financial transactions to camouflage the
true character of their transactions, bribing and threatening Tribe members to keep them quiet,
and avoiding financial audits that would expose them. Further, after their termination from
employment, the RICO Ringleaders withdrew hundreds of thousands of dollars from Tribal bank
accounts, attempted to hide assets, liquidated their tribal retirement accounts, and otherwise
demonstrated their intent to transfer assets out of the reach and view of this Court. This past
conduct, much of which is admitted to, reveals also their fraudulent intent to dissipate assets
stolen from the Tribe.
An asset freeze is required to ensure that Plaintiffs have the opportunity to meaningfully
pursue their claims arising from the fraudulent scheme perpetrated by the RICO Ringleaders and
their co-conspirators. The Court should therefore grant immediate relief enjoining the RICO
Ringleaders from transferring or otherwise disposing of any assets in their possession, custody, or
control now or acquired in the future, with an allowance for reasonable living and legal
expenses.1 1 Counsel for the RICO Ringleaders and their RICO Co-Defendant Frank James has indicated that they may move for some type of stay of the instant action on fifth Amendment grounds in connection with the criminal investigation that has been initiated by the Department of Justice (“DOJ”) and Internal Revenue Service (“IRS”) concerning the events underlying the instant case, Declaration of Stuart G. Gross in Support of Plaintiffs’ Motion for a Preliminary Injunction (“Gross Dec.”), ¶¶ 3-4. Plaintiffs understand that the investigation focuses, in particular, on embezzlement by the RICO Ringleaders and the cyber-attacks that the RICO Defendants committed after the termination of their employment by the Tribe. Plaintiffs would oppose such motion; however, in the event it was granted, Plaintiffs would seek a modification of the Freeze Order to reduce the amount the RICO Ringleaders are allowed to spend on attorneys’ fees and costs in this litigation. It is, furthermore, reasonable to assume that the RICO Ringleaders have
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BACKGROUND
I. Factual Background
In Plaintiffs’ Opposition to Defendants’ Motion to Stay or in the Alternative Dismiss
Pending Arbitration and Plaintiffs’ Counter Motion to Stay the Arbitration (“Plaintiffs’
Opp./Cntr. Motion”), Dkt. No. 67, Plaintiffs’ First Amended Complaint (“FAC”), Dkt. No. 30,
and Plaintiffs’ Omnibus Opposition to Defendants’ Motion to Dismiss, filed herewith, Plaintiffs
provide a detailed discussion of the background of the instant case to which Plaintiffs respectfully
direct the Court and hereby incorporate by reference. In short, through this suit, Plaintiffs seek to
hold responsible former Tribal employees who, with the substantial assistance of others, through
a concerted and systematic program of fraud, coercion, intimidation, extortion, bribery and
deception, stole and otherwise diverted tens of millions dollars in Tribal money for their own
personal benefit, as well as for those who substantially assisted them in this scheme. That scheme
is now the subject of an ongoing criminal investigation by the DOJ and IRS. Gross Dec., ¶ #.
Specifically, the RICO Ringleaders, along with those they eventually brought into the
ambit of their scheme, Defendants Ted Pata, Juan “Jon” Pata, Chris Pata, Sherry Myers, and
Frank James (collectively with the RICO Ringleaders, the “RICO Defendants”), abused their
positions as senior employees of the Tribe in order to steal and embezzle from the Tribe with
impunity. These individuals were terminated from employment by the Tribe in April 2014. See
Gross Dec., Exs. A-D.
Upon their removal, Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) was
engaged by the Tribe, as part of a mediated process involving the RICO Ringleaders, to
investigate, inter alia, allegations of financial mismanagement of Tribal assets and certain
spending and operational irregularities of the Tribe. Declaration of Christopher Davies in Support
of Plaintiffs’ Motion for a Preliminary Injunction (“Davies PI Dec.”), Ex. A (“WilmerHale
been required to pay large initial retainers to counsel representing them in the criminal investigation, resulting in the further dissipation of the funds stolen by them from the Tribe; therefore, it is Plaintiffs’ position that without a showing of good cause—in particular, including that such an initial retainer has not been paid—that the amount allocated to the RICO Ringleaders to pay for attorneys’ fees and costs not be increased as a result of the criminal investigation.
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Report”) 2 at 3. On September 1, 2014, WilmerHale issued its Report of Findings and
Recommendations. Id. The WilmerHale Report found that the RICO Ringleaders had “fallen far
short of their legal and ethical obligations to the Tribe” and that the RICO Ringleaders had made
“unreasonable expenditures…including compensation of the [RICO Ringleaders] and extravagant
expenses” in addition to “irresponsible management of the Tribe’s financial assets.” Id. at 3. The
WilmerHale Report notes that during the RICO Ringleaders’ tenure, “of the $191 million in
Tribal funds available…at least $61 million – over 30 percent – was spent on Tribal
administration and overhead, including compensation paid to the [RICO Ringleaders].” Id. at 4.
The WilmerHale Report ultimately recommended that the Tribe pursue legal action. Id. at 6.
Between early 2001 and April 2014, the RICO Ringleaders controlled much, if not all, of
the Tribe’s financial operations. RICO Ringleader Ines Crosby became its Tribal Administrator
sometime in 1996. See Declaration of Christopher Davies in Support of Plaintiffs’ Opposition to
Defendants’ Motion to Stay (“Davies Stay Dec.”), ¶ 11. 3, RICO Ringleader John Crosby left the
Federal Bureau of Investigation (“FBI”) in early 2001 to become the Tribe’s “Economic
Development Director.” Id., ¶ 18(b). Mr. Crosby, who is Ines Crosby’s son, has a degree in
accounting and law and served in the FBI as a Special Agent in the FBI’s white-collar crime
division. Id. RICO Ringleader Leslie Lohse is Ms. Crosby’s sister and John Crosby’s aunt. Leslie
Lohse became the Tribe’s Treasurer in 1998, though she has also claimed to have been employed
as the Tribe’s “Political Director.” Davies PI Dec., Ex. A (WilmerHale Report) at 14. RICO
Ringleader Larry Lohse is Ms. Lohse’s husband and became the Tribe’s “Environmental
Director” in 2001; he does not claim to be a member of the Tribe. Id.
During their employment with the Tribe, the RICO Ringleaders used their control over the
Tribe’s financial operations to implement a concerted system of fraud, coercion, intimidation, 2 This report may and should be considered by the Court. See Flynt Distrib. Co., Inc. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984) (“The urgency of obtaining a preliminary injunction necessitates a prompt determination…[t]he trial court may give even inadmissible evidence some weight, when to do so serves the purpose of preventing irreparable harm before trial.”) 3 Rather than resubmit Mr. Davies lengthy declaration, Plaintiffs’ respectfully direct the Court to his declaration in Support of Plaintiffs’ Opposition to RICO Defendants’ Motion to Stay or in the alternative Dismiss Pending Arbitration and Counter Motion to Stay Arbitration (“Plaintiffs’ Opp./Cntr-Mtn”). Plaintiffs’ have also provided the Court with a brief supplemental declaration from Mr. Davies in support of the instant motion (“Davies’ PI Dec.”).
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extortion, bribery and deception, with the purpose, and result of, stealing tens of millions of
dollars from the Tribe. The RICO Ringleaders scheme involved both direct thefts of millions of
dollars from Tribal bank accounts, some of which are detailed below,4 as well as the unauthorized
use of millions of dollars more for their own compensation and extravagant expenses.
After the RICO Ringleaders were terminated from their employment with the Tribe their
criminal conduct continued. In an attempt to destroy evidence of their crimes, the RICO
Defendants launched three separate cyber-attacks, culminating in an attack which systematically
deleted all of the Tribe’s primary storage locations of data for their principal business, the Rolling
Hills Casino (the “Casino”). See Declaration of Lance Heinle in Support of Plaintiff’s Motion for
a Preliminary Injunction (“Heinle Dec.”), ¶¶ 8, 9. The attack cost the Casino and the Tribe
hundreds of thousands of dollars. Declaration of Bruce Thomas in Support of Plaintiff’s Motion
for a Preliminary Injunction (“Thomas Dec.”), ¶ 13.
After the cyber-attacks, in a last ditch effort to maintain their control over the Tribe and its
money, the RICO Defendants sent hired thugs, armed with automatic weapons, to take control of
the Casino. There was a physical stand-off at the Casino involving approximately 50 Tribe
members. Davies PI Dec., Ex. A (WilmerHale Report) at 17. Ultimately, the Tehama County
Sheriff deployed deputies to the Casino in order to keep order; and on June 18, 2014, a restraining
order was obtained by the California State Attorney General from the U.S. District Court for the
Eastern District of California enjoining the RICO Defendants and anyone else from, among other
things, disturbing the status quo at the Casino (controlled by the Tribal Council constituted on
April 12 and May 10) and possessing firearms on Tribal properties. Id. at 17-18.
Since the WilmerHale Report was released, and despite the fact that discovery has just
begun, the Tribe has since found evidence, some of which is discussed below, confirming
WilmerHale’s conclusions and indicating an even greater level of illegal conduct. Indeed, even
after their employment was terminated, the RICO Ringleaders continued to steal from the Tribe,
cashed out their Tribal retirement accounts, and looked to transfer assets overseas. 4 Given the extent of Plaintiffs’ allegations against the RICO Ringleaders, which involve egregious theft and other illicit conduct spanning almost two decades, Plaintiffs’ instant motion necessarily addresses only a small portion of this conduct.
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II. Procedural Background
On March 15, 2015, Plaintiffs filed the original complaint in this action. See Dkt. No. 1.
On April 17, 2015, Plaintiffs filed the FAC. See Dkt. No. 30. On May 13, 2015, the RICO
Defendants filed a demand for arbitration against the Tribe pursuant to the Fraudulent
Employment Agreements with the American Arbitration Association (“AAA”), and, on May 15,
2015, the RICO Defendants filed their Stay Motion. See Dkt. No. 55. Plaintiffs filed their
Opposition to Defendants’ Motion to Stay or in the Alternative Dismiss Pending Arbitration and
Plaintiffs’ Counter Motion to Stay the Arbitration on June 16, 2015, which is incorporated by
reference herein in its entirety. See Dkt. No 67.
On May 15, 2015, various Defendants filed their Motions to Dismiss for Lack. See Dkt.
Nos. 45, 46, 50, 51, 52, 53, and 54. Plaintiffs’ filed an omnibus opposition to these motions to
dismiss concurrently herewith which is incorporated herein in its entirety.
On June 10, 2015, Plaintiffs’ counsel was informed by counsel for the RICO Defendants
that the FBI had raided the homes of the RICO Ringleaders in connection with a criminal
investigation related to suspected embezzlement and cyber-crimes by the RICO Ringleaders and
others. Gross Dec., ¶2-3.
LEGAL STANDARDS
Federal Rule of Civil Procedure 65 provides courts with authority to preliminarily enjoin
conduct by defendants prior to a full adjudication on the merits of a case. The purpose of a
preliminary injunction is “to preserve the satus quo with provisional relief until the merits can be
sorted out.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1134 (9th Cir. 2001).
A court’s authority to preserve the status quo in this manner includes issuance of a
preliminary injunction freezing a defendant’s assets to prevent a defendant from dissipating or
hiding those assets, so as to preserve preserve a plaintiff’s ability to attain a meaningful judgment.
Johnson v. Couturier, 572 F.3d 1067 (9th Cir. 2009); see also, e.g., Republic of Philippines v.
Marcos, 862 F.2d 1355, 1358 (9th Cir. 1988); FTC v. Affordable Media, LLC, 179 F.3d 1228,
1236-37 (9th Cir. 1999). This is true regardless of whether substantial money damages are sought
in addition to equitable relief. See e.g., Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills,
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321 F.3d 878, 881 (9th Cir. 2003); Walczak v. EPL Prolong, Inc., 198 F.3d 725, 730 (9th Cir.
1999).5
A preliminary injunction should issue if the plaintiff establishes: “[(1)] that he is likely to
succeed on the merits, [(2)] that he is likely to suffer irreparable harm in the absence of
preliminary relief, [(3)] that the balance of equities tips in his favor, and [(4)] that an injunction is
in the public interest.” Am. Trucking Ass’ns., Inc. v. City of Los Angeles, 559 F.3d 1046, 1052
(9th Cir. 2009), citing Winter v. Natural Resources Defense Council, 555 U.S. 7 (2008). In
recognition that the purpose of preliminary injunction is “‘to preserve the status quo pending at
least some discovery and further hearing on the merits,’” the Ninth Circuit has confirmed “the
‘serious questions’ approach survives Winter when applied as part of the four-element Winter
test.” In other words, “serious questions going to the merits” and a hardship balance that tips
sharply toward the plaintiff can support issuance of an injunction, assuming the other two
elements of the Winter test are also met. Alliance For The Wild Rockies v. Cottrell, 632 F.3d
1127, 1132 (9th Cir. 2011).
ARGUMENT
I. Plaintiffs Are Likely To Be Irreparably Harmed Absent A Freeze Order, As the RICO Ringleaders Have Shown They Are Likely to Dissipate and/or Hide Assets Stolen From the Tribe.
The RICO Ringleaders consistent pattern of theft, fraudulent behavior, and attempts to
evade liability, make it likely Plaintiffs would suffer irreparable harm in the absence of an order
freezing the RICO Ringleaders’ assets. “A party seeking an asset freeze must show a likelihood
of dissipation of the claimed assets, or other inability to recover monetary damages, if relief is not
granted.” Johnson, 572 F.3d at 1085. Courts have routinely found irreparable harm (i.e., a
likelihood of dissipation of the claimed assets) where a defendant has demonstrated a pattern of 5 Courts have repeatedly rejected the suggestion that the Supreme Court’s ruling in Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., (“Grupo Mexicano”) 527 U.S. 308 (1999) divests the Court of its equitable authority to freeze assets. The Supreme Court in Grupo Mexicano concluded that federal courts do not have the inherent power to grant a preliminary injunction freezing a defendant’s assets solely for the purpose of protecting the plaintiff’s ability to collect a money judgment. However, this decision left untouched a district court’s authority to issue such an injunction where, as here, equitable relief is sought. Johnson, 572 F.3d at 1083 (explaining that “by its very terms, the holding of Grupo Mexicano is limited to cases in which only monetary damages are sought.”) see FAC, ¶¶ 751-763, pp. 185-186.
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theft, fraud, and subsequent attempts to evade liability. These courts have found that such
conduct indicates that in the absence of an asset freeze, plaintiffs will not be afforded the potential
for relief. See, e.g., In re Focus Media Inc. v. Pringle, 387 F.3d 1077, 1086 (9th Cir. 2004)
(finding “the specter of irreparable harm” in part because of “evidence in the record that in the
past [the defendant] made away with [the bankrupt company’s] funds”); Conn. Gen. Life
Insurance Co., 321 F.3d at 881 (affirming district court’s finding of a likelihood of dissipation
given the defendants’ “history of fraudulent intra-family transfers, their refusal to disclose asset
information in defiance of court order and their convenient divorce settlement”); Affordable
Media, LLC, 179 F.3d at 1236-37 (finding a likelihood of dissipation of assets “[g]iven the
[defendants’] history of spiriting their commissions away to a Cook Islands trust”); Johnson, 572
F.3d at 1067 (CEO’s theft of nearly $35 million of company money showed he was likely to
place personal assets beyond the reach of a judgment, establishing “a likelihood that in the
absence of an asset freeze and accounting, Plaintiffs will not be able to recover the improperly
diverted funds and will thus be irreparably harmed.”); Marcos, 862 F.2d at 1358 (defendants’ past
fraudulent conduct warranted a preliminary injunction baring defendants from disposing of any of
their assets pending a trial on the merits of plaintiff’s constructive trust claim).
A. The RICO Ringleaders Consistent Pattern of Fraud and Theft of Tribal Resources, Even After Their Removal From Power, Make it Likely They Will Dissipate Assets To Prevent Plaintiffs’ Recovery
As detailed extensively in the FAC, and supported by evidence discovered thus far,
through a concerted and systematic program of fraud, coercion, bribery, and deception, the RICO
Ringleaders stole tens of millions of dollars from the Tribe over the course of nearly two decades.
They stole this money through clandestine and deceptive tactics aimed at hiding their conduct
from the Tribe.
The RICO Ringleaders were able to divert over thirty percent of the Tribe’s available
funds for their own personal use, largely undetected, by implementing a devious scheme to
conceal their theft.
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1. The RICO Ringleaders Orchestrated and Executed Complex Fraudulent Transactions In Order to Hide Their Theft of the Tribe’s Money
In order to hide their theft of Tribal money, the RICO Ringleaders engaged in elaborate,
complex financial transactions, the result of which was to divert the Tribe’s money into their
pockets. Examples of these transactions include, loans of Tribal money that were personally
repaid to them; transfers of money from the Tribe’s operating accounts into other accounts from
which their thefts would be less likely discovered; large checks written to each other from the
Plaintiffs’ bank accounts; personal loans taken out on a luxury home paid for by Tribal money;
payment of personal credit card bills out of Tribal accounts they controlled; and cash withdrawals
structured to avoid federal reporting requirements.
a. RICO Ringleader Ines Crosby Made Loans with Tribal Money in Order to be Personally Repaid
Exemplifying the measures the RICO Ringleaders took to avoid detection of their thefts
from the Tribe, in March 2013, RICO Ringleader Ines Crosby loaned approximately $192,000 of
Tribal money to her future brother-in-law, arranging that he repaid her personally taking
measures to prevent evidence of the transaction from being recorded. See Davies PI Dec., ¶ 6(g),
(h), (i). Bank records from Umpqua Bank show that on January 15, 2013, Ms. Crosby withdrew
$191,750 from the Tribe’s account, see A. Rico Dec., Ex. A at p. 80 (Umpqua Bank records), and
that same day, Ms. Crosby loaned this money to Larry Tracy, her sister in law’s future husband.
Davies PI Dec., ¶6(d).; A. Rico Dec., Ex. B (loan agreement between Ms. Crosby and Mr. Tracy).
Thereafter, in September 2013, Mr. Tracy gave Ms. Crosby a $192,000 cashier’s check in
satisfaction of the loan. Davies PI Dec., ¶¶ 6(a), (b); see A. Rico Dec., Ex. B. Ms. Crosby cashed
the check at the Casino cage and walked out the front door with bags of cash. See Declaration of
Brandin Paya in Support of Plaintiffs’ Motion for a Preliminary Injunction (“B. Paya Dec.”), ¶ 5,
Ex. A (Notice of Revocation of Gaming License).
During this transaction, RICO Defendant Ted Pata, Ms. Crosby’s brother, stood guard at
the door of the Casino cage where the check was cashed, and RICO Defendant Jon Pata, who
controlled the surveillance department, ensured that nothing was recorded on video. See B. Paya
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Dec., ¶ 5, Ex. A. Jon Pata lost his gaming license as a result of this incident. B. Paya Dec., Ex. A.
During WilmerHale’s investigation, when challenged about the transaction Ms. Crosby
admitted to having loaned Mr. Tracy this money, claiming she did so pursuant to her line of credit
afforded her in her purported employment agreement. Davies PI Dec., ¶¶ 6 (d). As discussed
below, this purported employment agreement is void for a host of reasons. During her interview,
Ms. Crosby also admitted that she cashed the $192,000 check from Mr. Tracy at the Casino cage.
Davies PI Dec., ¶¶6 (a), (b), (f). Ms. Crosby further explained that she and Ted Pata arranged a
specific time for her to cash the check at the Casino. Id., ¶ 6 (h). She claimed that she didn’t just
cash the check at a bank or deposit the check because of “the state of the economy.” Id., ¶ (6) (i).
Ms. Crosby’s explanations are not credible, rather, the far more reasonable explanation is that Ms.
Crosby engaged in this subterfuge in order to disguise and hide from discovery the fraudulent
character of the transaction.
b. RICO Ringleader John Crosby Stole from The Tribe’s Principal Investment Account at Cornerstone Bank, Where Mr. Crosby was a Member of the Board of Directors, in Order to Veil The Thefts as Investments and Business Expenses
Further exemplifying the RICO Ringleaders’ fraudulent scheme and efforts taken by
them to hide it, RICO Ringleader John Crosby regularly transferred money from the operating
accounts of the Truibe to the accounts of PEC at Abettor Defendant Cornerstone Bank
(“Cornerstone Bank”) and then made large withdrawals from those PEC accounts for his personal
benefit. Again, like Ms. Crosby’s loan, these transactions were conducted so as to camouflage
their fraudulent nature.
The Tribe made the bulk of their investments through PEC, and using the PEC accounts at
Cornerstone Bank, where Mr. Crosby conveniently sat on the Board of Directors. Davies Stay
Dec., ¶ 18(ll). In this position, Mr. Crosby was free to withdraw money from the Tribe’s
Cornerstone accounts at will. Davies Stay Dec., ¶18(u) (Mr. Crosby admitting to having
withdrawn $1.5 million - a significant underestimate - primarily from the Tribe’s PEC account at
Cornerstone). However, as the records from the Tribe’s accounts show, Mr. Crosby often
transferred money from Tribal operating accounts prior to a PEC account and then withdrew
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money from the PEC account; he did so rather than simply withdrawing the money directly from
the Tribe’s operating accounts, so as to disguise his thefts of Tribal funds as investments or
business expense by PEC. Mr. Crosby’s seat on the Cornerstone Bank’s Board of Directors,
conveniently allowed him to conduct these transactions with impunity. By way of example, these
transactions include:
• On August 18, 2010, $1.2 million was transferred from a Tribal operating account to a
PEC account. A. Rico Dec., Ex. D. Mr. Crosby wrote a check to RICO Ringleader Larry
Lohse for $50,000 from that PEC account that same day. Id.
• On April 13, 2011, $300,000 was transferred from one of the Tribe’s operating accounts
to a PEC account. A. Rico Dec., Ex. E. Two days later Mr. Crosby wrote a check for over
$45,000 to Corning Ford from that PEC account for the purchase of a vehicle for himself.
Id.6
• In June 2011, a total of $1.3 million was transferred from a Tribal operating account into
the PEC account. A. Rico Dec., Ex. F. During that month, Mr. Crosby made a total of over
$1.2 million outgoing wire transfers from that PEC account for unspecified purposes. Id.
• On June 30, 2011, $100,000 was transferred from a Tribal operating account into a PEC
account. A. Rico Dec., Ex. F. That same day a $100,000 check posted from John Crosby
to Jack Stringer from that PEC account as payment for storage of the private jet the RICO
Defendants purchased with Tribal funds but used for personal purposes. Id. (memo of
check reads “Airport Hangar”.)
• On August 9, 2012, $1.7 million was transferred from a Tribal operating account into the
PEC account. A. Rico Dec., Ex. G. The following day, Mr. Crosby made an unauthorized
wire transfer of $1.5 million from that PEC account. Id.
• On January 17, 2013, Mr. Crosby transferred $250,000 from a Tribal operating account to
a PEC account. A. Rico Dec., Ex. H. Less than two weeks later, Mr. Crosby made a
6 Mr. Crosby admitted to purchasing at least three vehicles with Tribal funds, including a Boss 302 Mustang, a 650-horsepower Shelby, and a ZL1 Camaro, using money from PEC Tribal accounts at Cornerstone, totaling approximately $160,000 or $170,000. Davies Stay Dec., ¶ 18(u)(i).
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checkless withdrawal of $66,900 from that PEC account. Id.; and
• On May 16, 2013, $200,000 was transferred from a Tribal operating account into the PEC
account at Cornerstone Bank. A. Rico Dec., Ex. I. The same day, John Crosby wrote a
check to RICO Ringleader Larry Lohse for $63,410.84 from that PEC account. Id. Two
days prior, on May 14, 2013, John Crosby wrote himself a check for just over $33,000
from that PEC account. Id.
These transactions make plain that Mr. Crosby’s intention was to conceal his thefts by first
transferring money that he intended to steal from Tribal operating accounts into a PEC account.
Mr. Crosby acted to disguise such thefts as investments by the Tribe through PEC.
c. RICO Ringleader John Crosby Disguised Large Thefts From the Tribe Through the Purchase of a Luxury Home Which He Used to Take Out Large Home Equity Loans
With the aim of disguising what were, in reality, thefts of large loans of cash from the
Tribe, after using the Tribe’s money, without authorization, to purchase a large luxury home for
himself, Mr. Crosby took the Tribe’s money out of the home by encumbering it with home equity
loans that he used for his benefit. In January 2012, Mr. Crosby withdrew $838,434.14 from a
Tribal PEC account for the purchase of a cashier’s check of the same amount made out to the
escrow company to complete the purchase of a luxury home on Deer Hollow Court (“Deer
Hollow Property”). See A. Rico Dec., Ex. Q (bank record of Mr. Crosby’s withdrawal); see also
Davies Stay Dec., ¶ 18(u)(iii)(in which Mr. Crosby admits to withdrawing approximately
$800,000 of Tribal money for this purpose).
Approximately four months after purchasing the Deer Hollow Property, Mr. Crosby then
took out an approximately $200,000 home equity loan from Cornerstone Bank secured by the
home. Gross Dec., Ex. I. Approximately 6 months later, Mr. Crosby effectively withdrew another
approximately $417,000 in cash of the Tribe’s money from the Deer Hollow Property by taking
out a second home equity loan from Quicken Loans, Inc. Gross Dec., Ex. K.
In short, Mr. Crosby purchased the Deer Hollow Property with the aim, in part, of using of
using the house as a vehicle to continue to steal from the Tribe via these home equity loans and
go undetected in the process: yet a further example of the RICO Ringleaders’ rigorous efforts to
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veil their thefts.
d. RICO Ringleaders Wrote Each Other, and Themselves, Sizeable Checks From the Plaintiffs’ Bank Accounts
As yet a further tactic to hide their fraudulent conduct, RICO Ringleaders wrote each
other large checks from the Plaintiffs’ bank accounts, rather than simply withdraw the money
personally.
Because Mr. Crosby sat on the Board of Directors of Cornerstone Bank, he and his co-
conspirators had free reign over the accounts at the bank. Accordingly, Mr. Crosby and Mr. Lohse
repeatedly wrote each other large checks from those accounts, masking them as business or
investment expenses. Examples include:
• In August 2010, Larry Lohse wrote John Crosby a $50,000 check from a PEC account; six
days later John Crosby returned the favor and wrote Larry Lohse a $50,000 check from
the same account. A. Rico Dec., Ex. E;
• On December 2, 2010, Mr. Lohse wrote two separate checks to Mr. Crosby for $50,000
each from a PEC account. Rico Dec., Ex. J. That same day Mr. Crosby wrote two
$50,000 checks to Mr. Lohse from the same account. Id.;
• On December 21, 2010, Mr. Crosby wrote Mr. Lohse a check for $42,790.60 from a PEC
account. A. Rico Dec., Ex., K.;
• On December 22, 2011, Mr. Crosby wrote Mr. Lohse a check for $13,972.50 from a PEC
account. A. Rico Dec., Ex., N.;
• On December 20, 2012, Mr. Crosby wrote Mr. Lohse a check for over $75,000 from a
PEC account. A. Rico Dec., Ex., L.;
• On December 20, 2012, John Crosby wrote himself a check for $47,682.50 from a PEC
account. A. Rico Dec., Ex., M.;
• On May 14, 2013, John Crosby wrote himself a check for just over $33,000 from a PEC
account. A. Rico Dec., Ex., I; and
• On May 16, 2013, Mr. Crosby wrote a check to Mr. Lohse for $63,410.84 from a PEC
account. A. Rico Dec., Ex. I.
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Similarly, RICO Ringleader Ines Crosby had Leslie Lohse write sizable checks to her
from the bank account of the Tribe at Abettor Defendant Umpqua Bank, rather than simply
withdrawing the money personally, in order to avoid detection. Mr. Crosby referred to this
account at Umpqua as an account as an “account on the side” of Ines Crosby. Davies Stay Dec.,
¶18(v). Examples of these include:
• On January 18, 2013, Ms. Lohse wrote Ms. Crosby a check for $5,842.75 from a Tribal
account at Umpqua Bank. A. Rico Dec., Ex. A at 54.;
• On February 28, 2013, Ms. Lohse wrote Ms. Crosby a check for $3,410.40 from a Tribal
account at Umpqua Bank. A. Rico Dec., Ex. A at 48;
• On March 10, 2013, Ms. Lohse wrote Ms. Crosby a check for $5,341.16 from a Tribal
account at Umpqua Bank. A. Rico Dec., Ex. A at 48;
• On April 1, 2013, Ms. Lohse wrote Ms. Crosby a check for $6,500 from a Tribal account
at Umpqua Bank. A. Rico Dec., Ex. A at 45;
• On September 10, 2013, Ms. Lohse wrote Ms. Crosby a check for $2,010.50 from a Tribal
account at Umpqua Bank. A. Rico Dec., Ex. A at 31;
• On October 30, 2013, Ms. Lohse wrote Ms. Crosby a check for $3,417.62 from a Tribal
account at Umpqua Bank. A. Rico Dec., Ex. A at 25; and
• On March 2, 2014, Ms. Lohse wrote Ms. Crosby a check for $3,175.16 from a Tribal
account at Umpqua Bank. A. Rico Dec., Ex. A at 13.
These transactions plainly demonstrate that the RICO Ringleaders structured these transactions
under the guise of business-related payments when, in fact, they were simply stealing from the
Tribe by writing each other checks payable with the Tribe’s money, with the aim of hiding these
transactions from the Tribe.
e. The RICO Ringleaders Used Tribal Money to Pay Personal Credit Card Bills, Rather Than Spend Money Directly From Tribal Accounts, So As to Hide These Thefts
Additionally, the RICO Ringleaders caused the Tribe to pay their personal credit card
bills. Again, the RICO Ringleaders did so as a means to disguise their thefts, rather than pay for
these expenses straight from Tribal accounts, with the aim of avoiding their detection.
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Approximately $3 million was paid from the Tribal accounts for this purpose. This
amount includes, $2,394,386 in payments to American Express during the period of 2003 through
a portion of 2014 from a Tribal account at Umpqua Bank. See A. Rico Dec., Ex. A (Umpqua
Bank records). In fact, for just the period of February 2013 through March 2014, the RICO
Ringleaders caused $472,981.14 in American Express bills to be paid via a Tribal checking
account at Umpqua Bank, Id., at pp.10-49, which Mr. Crosby referred to as an “account on the
side” of his mother. Davies Stay Dec., ¶ 18(v).
In structuring their conduct in this way, the RICO Ringleaders obscured for what and
when they were using the Tribe’s money in order to disguise their theft of Tribal assets and avoid
liability.
f. The RICO Ringleaders Transferred Funds Between the Tribe’s Accounts at Tri Counties Bank Immediately Before Withdrawing Large Sums of Money
The RICO Ringleaders further covertly stole money from the Tribe by transferring large
funds between Tribal bank accounts at Tri Counties Bank, and then withdrawing large sums of
money. In 2011 and 2013, the RICO Ringleaders engaged in a series of transactions, in which
they deposited hundreds of thousands of dollars in the Tribe’s bank accounts at Tri Counties Bank
and then within a matter of days caused hundreds of thousands of dollars of those deposits to be
paid to the RICO Ringleaders. See A. Rico Dec., Ex. S (Tri Counties Bank statements). There
was no legitimate reason for these transactions; rather, they were done with the purpose and effect
of hiding the RICO Defendants’ theft of over $1.5 million from the Tribe.
The first of these fraudulent transactions began on or about November 21, 2011, when the
RICO Ringleaders caused a deposit of $900,000 to be made into one of the Tribe’s accounts at
Tri Counties Bank branch in Chico, California. See id. The same day, the RICO Ringleaders
transferred $737,200 from that Tribal account to another Tribal account at Tri Counties Bank. See
id. Then, on or about November 23, 2011, the RICO Ringleaders caused the remaining
$2,165,760.12 of Tribal funds in one account at Tri Counties Bank to be transferred to another
Tribal account at the bank. See id. Then, on or about November 25, 2011, the RICO Ringleaders
closed the original account causing $791,602.24, the balance of the Tribe’s money, to be paid to
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the RICO Ringleaders. See id.
Then, in November and December of 2013, the RICO Ringleaders engaged in a similar
series of transactions at Tri Counties Bank. On or about November 25, 2013, the RICO
Ringleaders caused $760,000 to be deposited in a Tribal account at Tri Counties Bank; and then,
on the same day, withdrew the same amount. See id. Approximately one month later, on or about
December 20, 2013, the RICO Ringleaders did the exact same thing, causing $760,000 of the
Tribe’s money to be deposited in an account at Tri Counties Bank; and then, on the same day,
withdrew that same amount. See id.
There was no legitimate reason for this series of transactions. Rather, the maneuvers were
conducted for the purpose, and with the resulting effect of, obscuring the RICO Ringleaders’ theft
of approximately of over $1.5 million from the Tribe. See id.
2. RICO Ringleader Ines Crosby Structured Unauthorized Withdrawals to Avoid Federal Reporting Requirements
While at times, especially after their termination, the RICO Ringleaders were brazen in
their thefts from the Tribe’s bank accounts, at other times, in order to avoid detection, the RICO
Ringleaders withdrew money from Tribal accounts in amounts structured to avoid Currency
Transaction Reporting (“CTR”) requirements, which require banks to report any cash transaction
over $10,000. 31 U.S.C. § 5311. RICO Ringleader Ines Crosby was aware of this requirement
given her son, John Crosby’s, experience as a former accountant and FBI special agent focusing
on white-collar crime. Davies Stay Dec., ¶ 18(b).
For example, between January 15, 2013, and April 7, 2014, RICO Ringleader Ines Crosby
wrote 15 checks out to cash for exactly $7,500, and five additional checks made out to cash for
between $1,000 and $6,500 from one of the Tribe’s accounts at Umpqua Bank. A. Rico Dec., Ex.
A at pp. 7-54. The structure of these withdrawals are significant: the consistent deceptive pattern
of the RICO Ringleaders, paired with Mr. Crosby’s knowledge of federal reporting requirements
is strongly probative of Ms. Crosby having intentionally structured these transactions so no single
withdrawal was above the $10,000 threshold, to avoid CTR reporting requirements.
_______________________________________
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In sum, the RICO Ringleaders didn’t just steal enormous amounts of money from the
Tribe, they did so with the evident intent of concealing their thefts. This conduct evinces the
likelihood that these individuals will continue such behavior by dissipating and/or hiding funds to
frustrate any potential future judgment. Accord Johnson, 572 F.3d at 1085 (affirming district
court’s finding of a likelihood of dissipation of assets in light of the fact that “in the mere five
years that [defendant] served as CEO, [he] somehow convinced his fellow directors and trustees
to consent to diverting nearly $ 35 million … into his personal bank account. Such an individual
is presumably more than capable of placing assets in his personal possession beyond the reach of
a judgment.”).
3. The RICO Ringleaders Bribed and Suspended Tribe Members to Conceal Their Conduct From the Tribe
In order to conceal their thefts and avoid responsibility for them, the RICO Ringleaders
also resorted to bribing or suspending Tribe members who discovered their wrongdoings, in order
to keep them quiet.
For example, in or about September 2011, RICO Defendants, Jon Pata and Ted Pata, who
were members of the Tribe’s Gaming Commission discovered that the RICO Ringleaders had
caused the Tribe to purchase a multi-million dollar private jet. See Thomas Dec., ¶ 5. In
September 2011, Ted Pata approached Bruce Thomas, the CEO of the Casino, and asked if Mr.
Thomas was aware that the Tribe had purchased a private jet and certain properties in Florida. Id.
Approximately two weeks later, Mr. Thomas observed Ted and Jon Pata driving brand new
luxury pickup trucks. Id., ¶ 6. Two months later, Messrs. Pata had different brand new luxury
pickup trucks. Id. Neither Ted nor Jon Pata ever mentioned the plane to Mr. Thomas again. Id., ¶
7. These trucks were intended as bribes from John Crosby to prevent Messrs. Pata from revealing
this to information to the rest of the Tribe.
The RICO Ringleaders also publicly and swiftly suspended Tribal members who
threatened to expose their financial misconduct causing them immense financial hardship.7 For
7 Suspended members lose their rights to per capita payments on which most depend for their survival. See Declaration of Kimberly Freeman in Support of Plaintiffs’ Motion for Preliminary Injunction (“K. Freeman Dec.”), ¶.
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example, Kimberly Freeman was suspended from the Tribe for a 10-year term after publicly
inquiring into the RICO Ringleaders’ spending habits. See K. Freeman Dec., ¶ 5. In 2013, Ms.
Freeman learned that the RICO Ringleaders’ had bought a private jet and that Mr. Crosby’s wife
had made political contributions with Tribal money. Id., ¶ 2. At the next Tribal meeting, Ms.
Freeman stood up and publicly asked the RICO Ringleaders about these purchases. Id., ¶ 3. She
was swiftly reprimanded. Shortly after she asked her questions, Mr. Crosby came to her and told
her that “he had been waiting for her to say this stuff” and that she was “done.” Id., ¶ 4. Soon
thereafter, Ms. Freeman was notified that she had been suspended from the Tribe for a term of 10
years. Id., ¶ 5. Per the terms of her suspension, her monthly per capita payments – upon which
she depended for basic living expenses – were revoked. Id. Further, she was informed that if she
stepped foot on Tribal property she would be immediately arrested. Id.
These tactics of bribery, and suspension and intimidation of Tribe members exhibit the
RICO Ringleaders’ pattern of evading liability for their thefts at all costs.
4. The RICO Ringleaders Prevented Any Financial Audits For Fear that Their Thefts Would Be Exposed
Another means by which the RICO Ringleaders sought to hide their scheme from
discovery, was by using their senior positions with the Tribe to prevent any and all audits of the
Tribe’s finances.
For example, sometime in 2006 or 2007, the Internal Revenue Service (“IRS”) attempted
to conduct an audit of the Tribe’s finances. Thomas Dec., ¶7. However, the RICO Ringleaders
refused to cooperate. Id. John Crosby rebuffed any attempt by the IRS to review the Tribe’s
financial records and as a result no audit ever took place. Id., ¶7.8
The RICO Ringleaders also intentionally structured certain contracts for the receipt of
federal funds so that the payments were below the threshold that would have required the Tribe to
perform and submit a financial audit. Under the Indian Self-Determination and Education
Assistance Act of 1975, Pub. L. No. 93-638, 88 Stat. 2203, Indian tribes are allowed to acquire
increased control over the management of federal programs that impact their members, resources 8 The IRS along with the DOJ is currently investigating Mr. Crosby, as well as other RICO Ringleaders, for suspected violations of federal law. Gross Dec., ¶ 5.
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and governments, through contracts providing for the payment of federal funds. These
agreements are referred to as “638 contracts.” Any Tribe accepting federal money under a 638
Contract must keep sufficient records to account for the use of those funds and make available to
the Bureau of Indian Affairs (“BIA”) full audits of the Tribe’s finances. 25 U.S.C. § 450(c).
These accounting and record-keeping requirements, however, can be avoided if the amounts paid
under the 638 Contract are beneath a certain dollar amount threshold.9 Id.
In order to avoid the requirement that the Tribe maintain records and account for these
federal funds, each of the Tribe’s 638 Contracts that the RICO Ringleaders caused the Tribe to
enter into during their tenure were structured to keep the payment amounts requested underneath
the $500,000 amount that triggered audits. Declaration of Jim Willis in Support of Plaintiffs’
Motion for a Preliminary Injunction (“Willis Dec.”), ¶ 4.
By evading any meaningful review of the Tribe’s finances by the IRS, BIA, or any other
entity or individual, the RICO Ringleader so as to ensure their thefts would go undiscovered. This
behavior further demonstrates the lengths to which RICO Ringleader will go to escape liability.
B. Realizing They Would Lose Access to Tribal Resources, After Their Removal From Power, The RICO Ringleaders Immediately Stole Large Amounts of the Tribe’s Money, Hid Assets, Destroyed Evidence, and Impeded Any Investigations Into Their Conduct
Each of the RICO Ringleaders acknowledged that their employment with the Tribe was
terminated on April 16, 2014. Gross Dec, Exs. A-D. However, even after their employment was
terminated, the RICO Ringleaders continued their fraudulent conduct: they liquidated their Tribal
retirement accounts, withdrew hundreds of thousands of dollars from the Tribe’s banks accounts,
moved assets out of the reach of the Tribe, destroyed critical evidence, and impeded the
investigation into their conduct.
1. Upon Realizing They Would Lose Access to Tribe’s Money, The RICO Ringleaders Emptied Out Their Retirement Accounts
Part of the RICO Ringleaders scheme to defraud the Tribe included causing the Tribe to
pay them enormously excessive and unauthorized sums in retirement compensation. The RICO
Ringleaders diverted for themselves almost all of the millions of dollars that they caused the Tribe 9 In 2003, the mandatory audit threshold was set at $500,000.00. OMB Circular A-133.
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to invest in two retirement plans, a defined benefit plan (“Tribal Pension”) and 401(k) (“Tribal
401k”) that the RICO Ringleaders caused the Tribe to establish (collectively, “Tribal Retirement
Plans”).
Between June 27, 2014 and June 30, 2014 each of the RICO Ringleaders liquidated their
Tribal 401(k) accounts. A. Rico Dec., Exs. A-D. In fact, so as to avoid efforts by the Tribe to
track and locate the funds, the RICO Ringleaders took the extraordinary step of withdrawing the
money in cash, and thus incurring significant tax penalties. IRS Notice 402(f).
On each of their withdrawal forms, April 16, 2014 is stated as the effective date of
separation from employment. Gross Dec., Exs. A-D. Accordingly, any action taken after this
effective date of separation indisputably was not in their capacity as an employee of the Tribe.
2. RICO Ringleader Ines Crosby Withdrew Hundreds of Thousands of Dollars from the Tribe’s Umpqua Bank Account After Her Employment Ended
Notwithstanding their termination from employment with the Tribe, the RICO
Ringleaders continued to steal from it. Between April 17, 2014 and May 27, 2014, RICO
Ringleader Ines Crosby helped herself to over $660,000 of the Tribe’s money. For example, on
April 17, 2014, five days after her removal, RICO Ringleader Ines Crosby wrote a $10,000 check
out to “Cash” from a Tribal account at Umpqua Bank. A. Rico Dec., Ex. A. Then, on May 5,
2014, she made a checkless withdrawal of $250,000 from a Tribal account at Umpqua Bank. A.
Rico Dec., Ex. A. One day later, on May 6, 2014, she wrote a $300,000 check made out to “NPI”
from a Tribal account at Umpqua. A. Rico Dec. The Tribe has not yet discovered the identity of
“NPI.”
Ms. Crosby stole this money, well after April 16, 2014, the date she acknowledged that
her employment with the Tribe ended. As such, she could not have had any reasonable belief that
she was authorized to this money.
3. RICO Ringleader John Crosby Put the Deer Hollow Property Up For Sale
In hopes of impeding the Tribe’s ability to recover, John Crosby listed the residence he
purchased with Tribal funds for sale. This house, on Deer Hollow Court, in Redding, California
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(“Deer Hollow Property”), was paid for by Tribal funds withdrawn by Mr. Crosby from the PEC
account. Davies Stay Dec., ¶ 18(u)(iii). On November 6, 2014, RICO Ringleader John Crosby
listed the Deer Hollow property for sale at an asking price of $1,300,000. See Gross Dec., Ex. E.
The listing was removed on February 27, 2015, only after Plaintiffs initiated a quiet title action
with respect to the Deer Hollow Property against Mr. Crosby. See id.
4. The RICO Ringleaders Took Extraordinary Actions to Destroy Evidence In An Attempt to Avoid Liability, Including Launching Cyber-Attacks and Deleting All Non-Spam Emails in Their Accounts
In May 2014, in a further attempt to avoid liability, the RICO Defendants conducted
multiple cyber-attacks on the Casino, which shut down data servers for the Casino and other
Tribal enterprises, and resulted in the permanent destruction of a substantial amount of data and
(likely incriminating) evidence. The RICO Ringleaders took credit for these cyber-attacks.
On May 9, 2014, the Casino suffered its first cyber attack involving a malicious attempt
deny access of the Casino’s network to employees and other intended users. Heinle Dec. RICO
Ringleader Leslie Lohse took credit for the May 9 cyber-attack in the local media, explaining that
she “did remotely shut down the casino’s gaming server on May 9.” Gross Dec., Ex. F.
Less than a week later, on May 14, 2014, approximately forty Casino employees received
a fake email containing a malicious hyperlink, which contained a “Cryptowall” virus, which
works by encrypting files on the compromised computer, and then asks the user to pay to have the
files decrypted. Heinle Dec., ¶ 7. About ninety minutes later, a second spoofed email was sent to
the same Casino employees. Id. This email contained a malicious password-protected file and was
opened by one recipient before the email was administratively deleted by the Casino’s
Information Technology (“IT”) Department. Id.
The RICO Defendants launched a third and this time successful attack on May 15, 2014.
Id., ¶#. That day, Casino personnel began to notice servers going offline and quickly confirmed
that all of their virtualized servers were missing and the backups had been erased. Id. During this
attack, the RICO Defendants were connected to the Casino’s network three times for a total of
approximately three hours. Heinle Dec. A forensic analysis showed that the cyber-attack was
launched from RICO Defendant Frank James’ workstation. Id. Mr. James’ residence was recently
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raided by the FBI in connection with the criminal investigation of the DOJ and IRS. Gross Dec.
In the course of the attack, the RICO Defendants systematically deleted all of the Tribe’s
primary datastorage locations. Id. In addition to the uncalculated cost of the lost data, the May 15,
2014 attack has cost the Casino and the Tribe hundreds of thousands of dollars to mitigate the
damage caused to their computer systems, in addition to the lost revenues from the period during
which the Casino and its servers were shut down. Thomas Dec., ¶13
RICO Ringleader Leslie Lohse took credit for these attacks stating they were done “to
remotely disrupt operations at the casino in an attempt and force a sit-down to resolve the issue.”
Gross Dec. Moreover, during the WilmerHale investigation, Ms. Lohse admitted to her
participation in the attack but incredibly claimed that “they never intended to destroy data.”
Davies PI Dec.
As senior employees of the Tribe, each of the RICO Ringleaders were issued Tribal
employee email addresses. Heinle Dec., ¶13. Once their employment was terminated, the RICO
Ringleaders wiped the server clean, deleting all of their email, in a further attempt to cover their
tracks and avoid liability. Id.
5. The RICO Ringleaders Absconded With The Tribe’s Plane
In yet another underhanded act, after the Rico Ringleaders were terminated from their
positions with the Tribe and consequently lost access to the private jet they had caused the Tribe
to purchase for their benefit, they had the plane held hostage in Idaho. See Thomas Dec. The
RICO Ringleaders’ apparently intended to use the plane as a bargaining chip in their negotiations
with the Tribe concerning their separation from employment.
Normally, the private jet was housed in a hanger in Redding, California; however,
sometime in or about June 2014, Gary Pohrman, the regular pilot for the RICO Ringleaders’
private jet flights, flew the plane to Idaho at the direction of the RICO Ringleaders. Thomas Dec.,
¶ 9. As evidence of the RICO Ringleaders’ facilitation of this scheme, on May 1, 2014,
approximately two weeks after the RICO Ringleaders’ employment was terminated, RICO
Ringleader Ines Crosby wrote the following checks from a tribal account at Umpqua Bank: (1) a
$6,700 check to Adaptation Aviation, LLC; (2) a $3,500 check to Julie Mason, the regular co-
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pilot on the RICO Ringleaders’ private jet flights; and (3) what looks to be a $12,111.15 check
made out to Gary Pohrman. See A. Rico Dec., Ex. A at p. 6.
After the Tribe discovered the private jet hade been taken, Bruce Thomas, CEO of the
Casino, contacted Mr. Pohrman and demanded that the private jet be returned to the Tribe.
Thomas Dec., ¶9. Ultimately, the Tribe was forced to negotiate with Mr. Pohrman, and was
forced into paying a total of $35,000 for the return of their jet. Id.
6. The RICO Ringleaders Fabricated Employment Agreements In Order to Justify Their Theft
As discussed in detail in Plaintiffs’ Opp./Cntr-Mtn, Dkt. No. 67, which is incorporated
herein by reference, in the wake of the RICO Ringleaders’ terminations, and in the face of
accusations of their financial misconduct, the RICO Ringleaders began to claim that any money
they took was authorized pursuant to lines of credit (“LOCs”) contained in purported employment
agreements each had allegedly entered into with the Tribe, dated January 25-26, 2001
(“Fraudulent Employment Agreements”). See Davies ISO Opp./Cntr-Mtn Dec., ¶¶6(g), 18(h),
20(l), 22(f). However, overwhelming evidence supports the conclusion that the Fraudulent
Employment Agreements were fabricated. Such evidence includes: (1) direct evidence that the
purported signatures of the Tribal Council members on the documents are forgeries; (2) the terms
of the Fraudulent Employment Agreements, which, themselves, are inconsistent with the Tribe’s
reality in 2001; (3) the manner in which the RICO Ringleaders claim the Tribe entered into the
Fraudulent Employment Agreements; (4) negotiations by John Crosby and the Tribe in 2003, to
revise a contract entered into by the Tribe and Mr. Crosby on January 1, 2001—twenty-four days
prior to the date on which his Fraudulent Employment Agreement was purportedly executed—in
which terms substantially less favorable than those in Mr. Crosby’s Fraudulent Employment
Agreement were proposed, without apparent objection from Mr. Crosby, and in which the
existence of Mr. Crosby’s Fraudulent Employment Agreement was never mentioned or discussed;
(5) conduct by the RICO Ringleaders between 2001 and their removal from control that is
inconsistent with the Tribe having given each of them a $5 million LOC; and (6) the lack of any
evidence of the Fraudulent Employment Agreements’ existence prior to their “revelation” by the
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RICO Ringleaders after their removal from control, as well as the circumstances of that
“revelation”. See Plaintiffs’ Opp./Cntr-Mtn.
The RICO Ringleaders efforts to manufacture these Fraudulent Employment Agreements
in a post hoc effort to justify their misconduct, and their consistent claims that these purported
agreements are authentic, further demonstrate the RICO Ringleaders willingness to go to any and
all lengths to avoid liability and the likelihood they will take actions to frustrate any meaningful
judgment in this action.
7. RICO Ringleader John Crosby Looked Into Moving Money Overseas
The danger that the RICO Ringleaders will dissipate assets is further exemplified by Mr.
Crosby’s expressed intent to transfer assets to the Philippines. In an email dated October 14,
2014, Chad Jones, a member of Mr. Crosby’s family, states that Mr. Crosby was “in the
Philippines looking to invest in different ventures.” A. Rico Dec., Ex. R. Mr. Crosby’s maternal
grandfather is from the Philippines. Davies Stay Dec., ¶ 18(a). The potential that he will hide the
Tribe’s money overseas, out of the reach of this Court, is real and imminent.10
8. The RICO Ringleaders Have Impeded Investigations Into Their Conduct
The RICO Ringleaders’ acts to impede the investigation of Tribal management is a further
factor weighing in favor of an asset freeze. See SEC v. Manor Nursing Centers, Inc., 458 F.2d
1082, 1106 (2nd Cir. 1972) (explaining the continued failure to furnish the information necessary
to a complete understanding of the current situation justified extension of the temporary freeze).
Here, as discussed, in the wake of the RICO Ringleaders’ dismissal, WilmerHale was
retained to conduct an internal investigation into the state of the Tribe’s finances and investments.
However, this investigation was substantially impeded by the RICO Ringleaders. The
WilmerHale Report notes that the RICO Ringleaders, inter alia, denied investigators access to
“important records in certain Tribal accounts.” Davies PI Dec., Ex. A. at 10. The WilmerHale
Report states in this regard: 10 Plaintiffs have further discovered bank records showing a link between a bank in Sudan and payments made from a PEC account at Cornerstone Bank from which Mr. Crosby regularly stole money, further warranting concern as to RICO Ringleader John Crosby’s intent to move assets overseas. See Gross Dec.
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We first requested that Mr. Crosby provide us with access to these bank accounts in July 2014, and we have repeated that request, in August 2014, after the [RICO Ringleaders] together had engaged counsel in connection with our inquiry. Although the [RICO Ringleaders] initially indicated that they would provide us with access to the bank records, their counsel informed us on August 22, 2014, that they would not authorize the banks to share the account records with us. As a result, we were unable to fully analyze and document how those accounts were funded and how funds from those accounts were spent.
Id.
The RICO Ringleaders not only failed to cooperate with WilmerHale’s investigation, but
rather, they intentionally impeded that investigation. Such conduct weighs in favor of issuing an
asset freeze order. See Manor Nursing Centers, Inc., 458 F.2d at 1106.
_______________________________________
In sum, the RICO Ringleaders have demonstrated an ongoing pattern of theft, fraud,
concealment, and unwavering attempts to evade liability. There is no reason to believe such
conduct will cease absent the requested injunction. Consequently, there is a substantial likelihood
that they will dissipate Tribal assets to frustrate any potential judgment. Accordingly, Plaintiffs
respectfully request that the Court issue a preliminary injunction freezing their assets, with the
exception of reasonable living and legal expenses.
II. Plaintiffs are Likely to Succeed on the Merits of Each of Their Claims Against the RICO Ringleaders.
While Plaintiffs contend that they are likely to succeed on all of their claims, in the
interests of efficiency, Plaintiffs will not specifically address each of the 25 causes of action
alleged in the FAC. Indeed, in their motion to dismiss, the RICO Defendants have not challenged
the plausibility or adequacy of any of the claims against them, rather they have challenged only
this court’s subject matter jurisdiction. See Defendants’ Motion to Dismiss, Dkt. No. 52-1. This
challenge lacks merit as set forth in Plaintiffs’ opposition thereto, incorporated herein by
reference.
The current criminal investigation by the DOJ and IRS related to the embezzlement and
cyber-crime committed by the RICO Ringleaders and others further evidences the merit of
Plaintiffs’ claims against the RICO Ringleaders. Moreover, while the WilmerHale Report
indicates that it is preliminary, this report is additionally demonstrates that the Plaintiffs’ are
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likely to succeed on the entirety of their claims.11
A. Plaintiffs Are Likely to Prevail on Their RICO, Civil Conspiracy, and Fraud Claims12
Plaintiffs’ first through sixth causes of action allege violations of the Racketeer Influenced
and Corrupt Organizations Act (“RICO”) 18 U.S.C. § 1962 (FAC, ¶¶ 431-501); Plaintiffs’
sixteenth claim for relief alleges civil conspiracy (FAC, ¶¶ 569-574); and Plaintiffs’ tenth and
eleventh claims for relief allege fraudulent concealment and fraudulent misrepresentation,
respectively (FAC, ¶¶ 526-546). Plaintiffs are likely to succeed, or at the very least have raised
serious questions on the merits, on each of these claims.
1. RICO Violations
Plaintiffs allege violations of 18 U.S.C. § 1962(a), (b), (c), and (d). FAC, ¶¶ 431-501.
Section 1962(a) prohibits “any person who has received any income derived, directly or
indirectly, from a pattern of racketeering activity to use or invest, directly or indirectly, any part
of such income, or the proceeds of such income, in acquisition of any interest in, or the
establishment or operation of, any enterprise.” Section 1962(b) prohibits the acquiring or
maintaining of an interest in, or control of, any enterprise engaged in interstate commerce using
funds from racketeering activity. See 18 U.S.C. § 1962(b). Section 1962(c) prohibits “any person
employed by or associated with any enterprise to conduct or participate, directly or indirectly, in
the conduct of such enterprises affairs through a pattern of racketeering activity or collection of
unlawful debt.” Section 1962(d) provides a cause of action for conspiring to violate any of the
provisions in subsections (a), (b), or (c). All World Prof'l Travel Servs. v. Am. Airlines, Inc., 282
F. Supp. 2d 1161, 1172 (9th Cir. 2003).
“Racketeering activity” under RICO includes: mail fraud, wire fraud, theft,
embezzlement, money laundering, bribery, and obstruction of justice – all of which have been
11 As noted, the WilmerHale Report can and should be considered by the Court. See Flynt Distrib. Co., Inc., 734 F.2d at 1394 (“The urgency of obtaining a preliminary injunction necessitates a prompt determination…[t]he trial court may give even inadmissible evidence some weight, when to do so serves the purpose of preventing irreparable harm before trial.”) 12 Plaintiffs’ RICO allegations are based upon nearly two decades of conduct by the RICO Ringleaders. While Plaintiffs contend they are likely to succeed on each of their RICO claims, due to space constraints, Plaintiffs have addressed only some of those claims.
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alleged against the RICO Defendants. See 18 U.S.C. § 1962; see FAC at 121-141. In this context,
“money laundering” includes the intentional act to “conceal or disguise the nature, the location,
the source, the ownership, or the control of the proceeds of specified unlawful activity.” 18
U.S.C. § 1962. “Wire fraud” and “mail fraud” include the use of mail or wire in furtherance of
any scheme to defraud, or for obtaining money or property by means of false or fraudulent
pretenses. 18 U.S.C §§ 1341, 1343.
As set forth above, the RICO Ringleaders, and other RICO Defendants, conspired with the
purpose of controlling the Tribes’ finances and ultimately stealing from them. See, e.g., A. Rico
Dec., Ex. A , Exs. C-Q(bank records demonstrating concerted thefts); B. Paya Dec., ¶, Ex. A;
Davies PI Dec. This enterprise was directed by, and chiefly benefited, RICO Ringleaders John
Crosby, Leslie Lohse, Ines Crosby, and Larry Lohse.
The RICO Defendants furthered their scheme through a pattern of criminal racketeering
activity, including: bribing RICO Defendants Ted Pata and Jon Pata with luxury automobiles
when they learned of the private jet (see Thomas Dec, ¶); stealing from Tribal bank accounts at
will, see A. Rico Dec., transferring money between Tribal accounts so as to hide their thefts, see
id, making withdrawals just below federal reporting requirements, see id., and paying each other
with sizable checks from Tribal accounts, see id., all with the purpose of concealing or disguising
the nature of their theft from the Tribe. This conduct constitutes money laundering, see 18 U.S.C.
§ 1956 (“money laundering” includes the intentional act to “conceal or disguise the nature, the
location, the source, the ownership, or the control of the proceeds of specified unlawful
activity.”), and, in many cases, involved wire fraud. See 18 U.S.C. § 1343. This enterprise was
conducted in interstate commerce in that it involved, inter alia: international wire transfers from
the PEC account at Cornerstone Bank to foreign and out-of-state bank accounts, including that of
Marcus Evans, Inc. in England, see A. Rico Dec., Ex. R at 3, interstate emails, and interstate
credit card payments, see A. Rico Dec., Ex. A (Umpqua Bank records).
Accordingly, Plaintiffs have set forth sufficient evidence demonstrating that they are
likely to succeed, on their claims under 18 U.S.C. § 1962 (a), (b), (c), and (d), and this likelihood
is increased by the existence of the ongoing criminal investigation by the DOJ into the conduct on
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which it is based.
2. Civil Conspiracy
Plaintiffs’ sixteenth claim for relief alleges civil conspiracy (FAC, ¶¶ 569-574). To
support a conspiracy claim, Plaintiffs must allege: “(1) the formation and operation of the
conspiracy, (2) wrongful conduct in furtherance of the conspiracy, and (3) damages arising from
the wrongful conduct.” AREI II Cases, 216 Cal.App.4th 1004, 1022 (2013) (citations omitted). A
“conspiracy” in this context is “an agreement by two or more persons to commit a wrongful act.”
CACI 3600; Wyatt v. Union Mortgage Co., 24 Cal.3d 773, 784 (1979) (“As long as two or more
persons agree to perform a wrongful act, the law places civil liability for the resulting damages on
all of them, regardless of whether they actually commit the tort themselves.”)(internal citations
omitted). As set forth in detail herein, the RICO Ringleaders agreed to, and did, steal millions of
dollars from the Tribe. See A. Rico Dec., Exs. A, C-Q. As such, Plaintiffs are likely to prevail on
this claim.
3. Fraud
Plaintiffs’ tenth and eleventh claims for relief are for fraudulent concealment and
fraudulent misrepresentation, respectively. (FAC, ¶¶ 526-546). California Civil Code section
1709 provides: “One who willfully deceives another with intent to induce him to alter his position
to his injury or risk, is liable for any damage which he thereby suffers.” The elements of an action
for fraud and deceit based on a concealment are: (1) the defendant must have concealed or
suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to
the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the
intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not
have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the
concealment or suppression of the fact, the plaintiff must have sustained damage.” Boschma v.
Home Loan Center, Inc., 198 Cal.App.4th 230, 248 (2011).
As discussed supra, the RICO Ringleaders went to great lengths to conceal their egregious
theft from Plaintiffs. As senior employees of the Tribe, the RICO Ringleaders were under a
fiduciary duty to act in the best interests of the Tribe; instead, they stole millions of dollars and
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went to great lengths to hide these thefts. See Davies Stay Dec., ¶¶ 6(b), 17(c), 19, and 22(a).
Because of the RICO Ringleaders’ continued misrepresentations, their theft was not discovered
for nearly two decades. The Tribe would have acted if it had knowledge of the RICO
Ringleaders’ misconduct, and as a result the Tribe has suffered loss of millions of dollars. As
such, Plaintiffs are likely to prevail on this claim as well.
B. Plaintiffs Are Likely to Prevail on Their Claims for Violations of State and Federal Cyber Crimes
Plaintiffs’ seventh (FAC 141-142) and eighth claims for relief (FAC, ¶¶ 502-518) are for
violations of the Federal Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030,13 and the
California Comprehensive Computer Data Access and Fraud Act, Cal. Penal Code § 502
(collectively “Cyber-Crime Claims”). The CFAA holds any person liable that “intentionally
accesses a protected computer without authorization, and as a result of such conduct, causes
damage and loss.” 18. U.S.C.§ 1030(a)(5)(C). Under this section, a “protected computer” is one
“which is used in or affecting interstate or foreign commerce…”. 18. U.S.C. § 1030(e)(2)(B);
United States v Kim, 677 F.Supp.2d 930 (2009, S.D. Tex) (explaining that transmitting
information via internet constitutes interstate commerce under the CFAA). The California
counterpart holds individuals liable that: “[k]nowingly and without permission disrupts or causes
the disruption of computer services or denies or causes the denial of computer services to an
authorized user of a computer, computer system, or computer network.” Cal. Penal Code § 502.
RICO Ringleader Leslie Lohse admits to participating in the cyber-attacks at the
Casino. See Davies PI Dec., ¶ 8; see also Gross Dec., Ex. F, G. In the attacks, which occurred
after the RICO Ringleaders admitted termination from employment with the Tribe, see Gross
Dec., Exs. A-D, the RICO Ringleaders systematically hacked into the Trib’s computer systems
and deleted all of the Tribe’s primary data storage locations and destroyed a significant amount of
evidence. Heinle Dec., ¶#. As former employees of the Tribe, the RICO Ringleaders were not 13 The FAC, Plaintiffs inadvertently cites to 18 U.S.C. § 1030(a)(3). Rather, Plaintiffs’ claims fall under 18 U.S.C. §§ 1030(a)(2)(C), (4), and (5). While the Tribe regrets the error, it does not bear on the Court’s decision. See McCalden v. Cal. Library Ass'n, 955 F.2d 1214, 1223 (9th Cir. 1990) (a plaintiff “is not required to state the statutory or constitutional basis for his claim, only the facts underlying it”). For purposes of brevity, Plaintiffs have addressed their claim under 1030(a)(5)(C) only.
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authorized to access the Casino’s network. Id., ¶#. However, even assuming arguendo, they did
have such authorization, they lost this authority once they acted to the detriment of the Tribe. See,
e.g., Int'l Airport Ctrs., L.L.C. v. Citrin, 440 F.3d 418, 420-21 (7th Cir. 2006) (finding
that authorized access to a company computer under the CFAA terminated once an employee
acted with adverse interests and against the duty of loyalty imposed on an employee in an agency
relationship with his or her employer or former employer); Hanger Prosthetics & Orthotics, Inc.
v. Capstone Orthopedic, Inc., 556 F. Supp. 2d 1122, 1131 (E.D. Cal. 2008) (same). Furthermore,
the CFFA law imposes liability on not just those who act “without authorization” but also those
who have “exceeded their authorization.” United States v Nosal, 676 F3d 854 (9th Cir. 2012). The
RICO Defendants certainly exceeded any conceivable authority they may have had when they
deleted evidence of their illegal conduct and other data contained on the Tribe’s computer
systems.
The DOJ investigation into these cyber-crimes is further indication of the likelihood that
Plaintiffs will prevail on these claims. See Gross Dec., ¶2-3. Accordingly, there is substantial
support for Plaintiffs’ Cyber-Crime Claims and they are likely to succeed on their merits.
C. Plaintiffs Are Likely to Prevail on Their Conversion, and Money Had and Received Claims Against the RICO Ringleaders.
Plaintiffs ninth and fifteenth claims for relief are for conversion (FAC, ¶¶ 519-525), and
money had and received (FAC, ¶¶ 565-568), respectively. Plaintiffs are likely to succeed on the
merits of these claims.
With respect to Plaintiffs’ conversion claim, Plaintiffs need show only: (1) Plaintiffs
ownership of property: (2) the RICO Ringleaders’ wrongful act interfered with the Plaintiffs’
possession; and (3) resulting damages. See PCO, Inc. v. Christensen, 150 Cal.App.4th 384, 524
(2007). Conversion is a strict liability tort. Los Angeles Federal Credit Union v. Madatyan, 209
Cal.App.4th 1383, 1387 (2012).
Plaintiffs’ money had and received claim requires that Plaintiffs similarly show: (1) the
RICO Ringleaders received money that was intended to be used for the benefit of Plaintiffs; (2)
that money was not used for the benefit of Plaintiffs; and (3) that the RICO Ringleaders have not
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given this money to Plaintiffs. CACI No. 370; Mains v. City Title Ins. Co., 34 Cal.2d 580, 586
(1949) (“Although such an action is one at law, it is governed by principles of equity. It may be
brought wherever one person has received money which belongs to another, and which in equity
and good conscience, or in other words, in justice and right, should be returned.”) (internal
citations omitted.)
At their core, these causes of action hold responsible persons who wrongfully take the
property of another for their own benefit. Here, as set forth in detail in the FAC, and examples of
which are provided above, the RICO Ringleaders took tens of millions of dollars from the Tribe,
see A. Rico Dec., Exs. A-Q, and used that money to buy, inter alia, luxury houses, cars, and jets
for their personal benefit. See Davies Stay Dec., ¶¶ 6(k), 18(u), 20(n), 22(f). In fact, each of the
RICO Ringleaders admit that they helped themselves to millions of dollars of the Tribe’s money
for their personal benefit. See id. While they claim they were authorized to take this money
pursuant to written employment agreements, each containing $5 million lines of credit, as
discussed supra, and set forth in detail in Plaintiffs’ Opp./Cntr-Mtn, these agreements are
fraudulent and thus void.
Moreover, once again, the DOJ investigation into the RICO Ringleaders suspected
embezzlement demonstrates the strength of Plaintiffs’ claims. Accordingly, Plaintiffs are likely to
prevail on their conversion and money had and received claims against the RICO Ringleaders.
D. Plaintiffs Are Likely to Prevail on Their Breach of Fiduciary Duty Claims
Plaintiffs’ thirteenth and fourteenth claims for relief are for breach of the RICO
Ringleaders’ fiduciary duties to the Tribe of: (1) undivided loyalty and (2) reasonable care. FAC,
¶¶ 554-564. A cause of action for breach of fiduciary duty requires the existence of a fiduciary
relationship, its breach, and damage proximately caused by that breach.” Knox v. Dean, 205
Cal.App.4th 417, 432 (2012) A fiduciary relationship is “any relation existing between parties to
a transaction wherein one of the parties is duty bound to act with the utmost good faith for the
benefit of the other party.” Cleveland v. Johnson, 209 Cal.App.4th 1315, 1338 (2012) (citations
omitted). A fiduciaries’ duty of reasonable care obligates that individual to act as a reasonably
careful person would under similar circumstances. See Kangarlou v. Progressive Title Co., Inc.,
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128 Cal.App.4th 1174, 1178 (2005). The duty of loyalty requires that the fiduciary not undertake
or participate in activities adverse to the interests of his principal. See Sequoia Vacuum Systems v.
Stransky, 229 Cal.App.2d 281, 287 (1964).
As senior employees of the Tribe, the RICO Ringleaders had fiduciary obligations of
loyalty and reasonable care. Davies Stay Dec., ¶¶ 6(b), 17(c), 19, and 22(a) (establishing the
RICO Ringleaders’ senior positions with Tribe.) Despite these obligations, they used their
positions to enrich themselves at the expense of the Tribe. See Davies Stay Dec., ¶¶ 6(k), 18(u),
20(n), 22(f); Davies PI Dec., ¶¶ 6(a); A. Rico Dec., Exs. C-Q; This is a clear breach of their
fiduciary duties to act reasonably and in the best interests of the Tribe. As such, Plaintiffs are
likely to succeed on their breach of fiduciary duty claim.
E. Plaintiffs Are Likely to Prevail on Their Equitable Claims for Constructive Trust and Accounting
Plaintiffs’ thirty-fourth and thirty-fifth claims for relief are for equitable relief:
constructive trust (FAC, ¶¶ 755-759), and accounting (FAC, ¶¶ 760-763). Plaintiffs are likely to
succeed, or at the very least have raised serious questions on the merits of their claims, that due to
the wrongful acts of the RICO Ringleaders the Tribe is entitled to a constructive trust and an
accounting.
Constructive trusts are the creatures of equity formed for the purpose of preventing the
perpetration of fraud. Holstrom v. Mullen, 84 Cal. App. 1, 4 (1927). “One who gains a thing by
fraud … the violation of a trust, or other wrongful act, is, unless he or she has some other and
better right thereto, an involuntary trustee of the thing gained, for the benefit of the person who
would otherwise have had it.” Cal. Civ. Code § 2224. A constructive trust may be imposed where
the following three conditions are satisfied: “(1) the existence of a res (property or some interest
in property); (2) the right of a complaining party to that res; and (3) some wrongful acquisition or
detention of the res by another party who is not entitled to it.” Communist Party v. 522 Valencia,
Inc., 35 Cal.App.4th 980, 990 (1995)(emphasis in original). Additionally, an accounting is
warranted where: (1) the nature of the relationship is one that requires an accounting; and (2) that
some balance is due the plaintiff. Stilwell v. Trutanich, 178 Cal.App.2d 614, 620 (1960).
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Here, there is substantial evidence in support of Plaintiffs’ claim for a constructive trust:
(1) the Tribe attained assets through a diversity of Tribal enterprises, including operation of the
Casino, see B. Thomas Dec., ¶¶ #; (2) this property belonged to the Tribe collectively; and (3) the
RICO Ringleaders took this property through the deceitful and malicious conduct discussed
above. Moreover, an accounting is appropriate because the Tribe is ignorant as to the extent of the
RICO Ringleaders theft and there are still large sums for which are unaccounted. A. Rico Dec.,
¶#; Huong Que, Inc. v. Luu, 150 Cal.App.4th 400, 418 (2007) (extreme difficulty in ascertaining
damages is a factor favoring injunctive relief.)
_______________________________________
Plaintiffs need only demonstrate success on the merits of one of their claims against the
RICO Ringleaders. This showing has been satisfied.
III. The Balance of the Hardships Tip Sharply in Plaintiffs’ Favor
In issuing a preliminary injunction, “[t]he court balances the harm that the injunction
might cause the defendant with the plaintiff's threatened injury. But the balance of hardships
tipping in favor of plaintiff is not a prerequisite to awarding preliminary injunctive relief.” QBAS
Co. v. C Walters Intercoastal Corp., No. SACV 10-0406 AG U.S. Dist. LEXIS 143945 (C.D.
Cal. December 16, 2010)(citation omitted). The court needs only consider the balance, and it may
grant preliminary relief even if “neither party has a clear advantage” if the Plaintiff is likely to
succeed on the merits of one or more of its claims and the other conditions are met. Id. Cf.
Alliance For The Wild Rockies, 632 F.3d at 1132. Here the balance of the hardships tip sharply in
Plaintiffs’ favor.
Absent an injunction, Plaintiffs would suffer a hardship because they are at risk of “not
be[ing] paid monies that are justly owed” as restitution for the myriad of harms the RICO
Ringleaders illegal conduct has caused them. Quantum Corporate Funding, Ltd. v. Assist You
Home Health Care Services of Va., 144 F. Supp. 2d 241, 249 (S.D.N.Y. 2001) (“Preliminary
injunctions” are “appropriate to thwart a defendant from making a judgment uncollectible.”)
By contrast, Defendants would suffer little to no cognizable prejudice if their assets are
frozen. The RICO Ringleaders have no right to use the profits of their illegal enterprise for their
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personal use. See Apple Inc. v. Psystar Corp., 673 F. Supp. 2d 943, 950 (N.D. Cal. 2009) (“Since
[defendant] does not (and cannot) claim any legitimate hardships as a result of being enjoined
from committing unlawful activities, and Apple would suffer irreparable and immeasurable harms
if an injunction were not issued, this factor weighs strongly in favor of Apple’s motion.”)
The RICO Ringleaders have amassed extravagant riches and have led very comfortable
lives at the Tribe’s expense. Whereas Plaintiffs may be deprived of any meaningful redress for
the RICO Ringleaders’ illicit conduct in the absence of an injunction, the RICO Ringleaders will
suffer little to no conceivable hardship if the Court freezes their ill-gotten gains. The balance of
hardships tips decidedly in Plaintiffs’ favor and an asset freeze of all the RICO Ringleaders’
assets in their entirety would be appropriate here; however, Plaintiffs are not requesting such an
order be issued. Plaintiffs request provides the RICO Ringleaders funds for reasonable living
expenses, and a collective allowance of $10,000 in attorneys’ fees and costs. This should relieve
any potential apprehension the Court may have as to any hardship on the Defendants. In fact, the
Ninth Circuit has found zero hardship under similar circumstances. Marcos, 862 F.2d at 1358
(finding “zero evidence of hardship” because “the district court stipulated in the injunction that
the Marcoses may use their assets to cover normal living expenses and legal fees.”)
The proposed injunction would merely preserve the status quo, freezing the RICO
Ringleaders’ assets until this litigation is resolved. If the judgment is less than the RICO
Ringleaders’ remaining total assets, the injunction will be lifted and the remaining assets unfrozen
for the RICO Ringleaders’ use.
IV. Issuing Plaintiffs’ Requested Preliminary Injunction Would Serve the Public Interest
Public policy considerations weigh in favor of issuing a preliminary injunction. The
Supreme Court has consistently expressed the view that the federal government is firmly
committed to the goal of promoting tribal economic development and self-sufficiency. New
Mexico v. Mescalero Apache Tribe, 462 U.S. 324 (1983)(expressing Congress’ desire to promote
the goal of tribal economic development); Oklahoma Tax Com'n v. Citizen Band Potawatomi
Indian Tribe of Oklahoma, 498 U.S. 505 (1991) (same).
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To that end of economic self-sufficiency, Tribe members began receiving benefits and per
capita payments in March 2003. A. Rico Dec, ¶23. In or around 2005, the median income of
Tribe members was approximately $13,000 and the unemployment rate for Tribe members was
approximately 46%. Willis Dec, Ex. A (Tribal demographic study). During that same time, the
benefits the Tribe provided its members (e.g., per capita distributions, health and education
benefits) kept members above the poverty line, but the vast majority of members had low or very
low incomes relative to other residents in the area. Id. Today, the Tribe’s current per capita
payments to its members—approximately $50,000 a year—continues to keep members above the
poverty line. Id.
The RICO Ringleaders have dealt a substantial blow to the Tribe’s economic
independence and stability. The acts of the RICO Ringleaders have undone a significant amount
of affirmative progress as a Tribe towards achieving economic self-sufficiency. The Tribe is now
working towards piecing together the financial ruins left behind by the RICO Ringleaders. In light
of the federal government’s interest in perpetuating the goal of the Tribe’s economic
development, the intentional encroachment on these concerns should be punished. If the Court
considers the question to be otherwise a close one, public policy concerns council in favor of
granting relief to freeze the RICO Ringleaders’ assets and prevent them from further profiting off
of their illegal enterprise.
The public interest would further be served by ordering the injunction, in light of
Congress’s specific intent that federal courts make themselves available as forums in which
Indian tribes can seek relief for injuries suffered as result of violations of federal law. See 28
U.S.C. § 1362. The public interest would be further served, as there is a strong federal policy in
favor of encouraging self-government and self-determination by Indian tribes. See Alvarez v.
Tracy, 773 F.3d 1011, 1013 (9th Cir. 2014). The decision to file the instant action by the Tribe is
an expression of such self-government and self-determination. To allow the RICO Ringleaders to
frustrate that choice and the will of Congress that Indian tribes be able to seek redress in federal
court for the harms they suffer as the result of federal law would be directly contrary to the public
interest.
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CONCLUSION
For the foregoing reasons, Plaintiffs respectfully request that their Motion for Preliminary
Injunctive Relief be granted.14
Dated: June 29, 2015 GROSS LAW, P.C.
By: /s/ Stuart G. Gross STUART G. GROSS
14 Pursuant to Local Rule 231(d), Plaintiffs intend to present oral argument at the hearing on the instant motion but do not intend to present live witness testimony. Plaintiffs anticipate that approximately thirty (30) minutes will be required for the hearing on this motion.
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